Spreads between CEGH and NCG natural gas contracts will decrease significantly in the next two years, the CEO of Austrian energy regulator E-control said in an interview with ICIS Heren in Vienna.
Walter Boltz said that liquidity on the Austrian market will be boosted by several changes in the market, but the upcoming approval of the Gaswirtschaftsgesetz (GWG) in parliament should have the biggest impact.
"We hope that the law will be approved within the coming weeks," said Boltz.
The GWG is an amendment to the country's gas industry law that incorporates the measures of the EU's third energy package. It has faced political resistance since March of this year.
However, Boltz believes that by the end of next year, the GWG will have attracted new players and more speculative trading into the Austrian market, which traditionally has been dominated by a few participants.
"In recent years, some market participants have managed to keep our outdated model of a separate transit and internal market by a lot of lobbying work. We always believed this separation to be against European legislation. But things will change with the new law," Boltz added.
The separation of transit and internal nets is an obstacle to free competition on the market, according to the regulator. "Austrian participants do not have access to all of the gas that is being transported through the country," said Boltz.
He added that around 40 billion cubic metres (Gm³) of gas is shipped through the country on the separate transit network each year, while Austria only has an annual demand of around 10Gm³.
"If you want to buy some of the transit gas and sell it within Austria, you have to wait until it reaches Germany and then book capacity for re-transporting it into Austria at Oberkappel," said Boltz.
This system is regarded as complicated and expensive for traders.
Once the GWG is approved, Austria will have an entry/exit model like other European countries and could therefore attract more market participants, since they will not have to concern themselves with capacity problems, said Boltz.
Limited exit capacity at Oberkappel
The transit point between Germany and Austria at Oberkappel is subject to a different capacity allocation problem.
Boltz said: "If there was plenty of exit capacity from Germany to Austria at Oberkappel, the spreads between prices would lower. But on the German side of the border, exit capacity is rather limited and most of it is used for transit. We have been in contact with our German equivalent, Bundesnetzagentur, for some time now and hope to find a solution for a bigger German exit capacity in the next months."
In the new entry/exit model, the capacity problem could also be diminished by better coordination between the Austrian and German transmission system operators (TSOs).
Currently, Austria has a physical trading point in Baumgarten, with just one entry point into the internal Austrian network. Boltz believes the country could turn the physical into a virtual trading hub by October 2012, in line with the GWG.
"We are already preparing this transformation and it won't take long to put it into practice, once the law is approved."
Another factor that might add to liquidity at CEGH is the construction of the Nabucco pipeline. "If Nabucco is realised, Austria will have facilitated access to LNG deliveries from Italy and therefore more natural gas sources at hand," Boltz added.
Unbundling
The GWG also includes guidelines for the TSOs on unbundling. According to the regulator, all three Austrian TSOs have opted for the independent transmission operator (ITO) model.
Boltz added that the unbundling of the Trans Austria Gasleitung (TAG) transit pipe to Italy would be particularly interesting, given its significance.
TAG's sale to Cassa Depositi e Prestiti is currently pending EU approval.
Boltz remains sceptical regarding the ITO model for unbundling. "I do not believe that a lot of companies in Europe will stick with this model. It is not attractive enough for most investors and in some time a lot of companies will opt for full ownership unbundling and sell their ITOs."
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